Misappropriation and Fiduciary Duties

Misappropriation and breach of fiduciary duties are related concepts that present themselves in family law matters. Married persons stand in a confidential relationship with each other and have duties and responsibilities not unlike that of trustees. Spouses may not treat each other as strangers or opposing business associates in an ‘arms length’ financial transaction. It is critical that these concepts are understood during the divorce process to avoid significant financial sanctions.

A misappropriation is a breach of a party’s fiduciary duty to the other party. Misappropriation or the breach of a fiduciary duty owed to the other party may exist in the following types of conduct:

• gifts of money to a girlfriend, boyfriend, or other third party

• purchase of illegal drugs or illegal guns

• illegal gambling

• payments to prostitutes/escorts

• “waste” or disposal of community property

• gross negligence or reckless conduct relative to community assets or investments

• intentional misconduct relative to community assets

• knowingly violating the law to the detriment of community assets

The following situations generally do not constitute a misappropriation or the breach of a fiduciary duty: